Daily Analysis – 28/05/08

Today’s US Dollar Trading
• USD starts slow; makes a show for strength in NY
• US data mixed and of little help
• Traders await more tomorrow

Overnight Preview

• Look for a rally in the USD overnight
• Lack of downside follow-on selling seen

Looking Ahead
All times EASTERN (-5 GMT)
• 8:30am USD Core Durable Goods Orders m/m -0.4%
• 8:30am USD Durable Goods Orders m/m -1.5%
• 9:00pm USD Dallas Fed President Fisher Speaks
• 12:50pm USD Minneapolis Fed President Stern Speaks

The USD enjoyed a day of higher pricing but failed to break into any new areas of S/R against the majors. For the most part the Greenback remained inside established ranges but is showing signs of bottoming and very well may rally the next 24 hours. Today’s US data was a mixed bag and traders note that across the board the USD attracted a fairly large amount of bids relative to the volume on the day. Although the day was considered a scratch day by most the USD continued to firm into the close of New York trading. After a brief flurry of activity during the release of Housing Data this morning the rest of the day was uneventful but continued to lean on the bid side suggesting that late USD shorts have yet to be cleared if they were shorts set “on the news” as is typical for small-money accounts. Cable dropped to the low end of the range but was unable to score new lows in New York; overnight stop-driven lows at 1.9713 remained unchallenged into the New York close. Traders note that the rate is tracking EURO today and because EURO was under threat most of the session GBP held on the softer side. EURO made new lows for the day at the 1.5700 handle on the AM news but failed to attract size on the offer. The rally to the 1.5730 area was on light volume and the rate fell back to close near the 1.5720 area in thin trade. A low-volume day after a three-day weekend suggests that large traders are secure in their positions and haven’t made a move yet this week. USD/JPY has a big day ahead of itself tomorrow in my view as COT data suggests that the market is heavily short USD into the 104.20 area. Although large stops are still out of range it is very likely that the rate will try for highs within 24 hours as the lows today were bought hard enough to challenge the 104.20 area on three occasions today. Often that is a sign of a market looking to make a move. For the day—the USD trade remained technical in nature and the lack of follow-on selling suggests that the market has one push higher into resistance coming. Aggressive traders need to be ready to sell the USD on a spike higher and tomorrow’s action likely to give us a point of reference in at least two-pairs: 104.80 area in USD/JPY and 1.5650 area in EURO/USD. Look for US news to increase volatility but for the pairs to stall at previous S/R during the London fix tomorrow.

Resistance 3:  1.5880
Resistance 2:  1.5850
Resistance 1:  1.5810/20
Latest New York:  1.5699
Support 1:  1.5700/1.5690
Support 2:  1.5650
Support 3:  1.5600

Rate holds inside range so far for the day but is evidently starting the week a bit softer. Overhead resistance appears firmer on the approach to the 1.5800/20 area with stops said to be out of range above around the 1.5850 area. Traders note that the rate feels “heavy” to start the week and warn of a potential overhang of stale longs. Stops under the 1.5700 area are said to be in size and bids ahead are from larger names, Lack of volume a concern but no trouble attracting selling pressure today. Look for model and momentum accounts to be on the bid the next 24 hours and should that be the case the rate is due for a break lower. Adding to the potential is the COT data showing a flip to net long from net short before the holiday. A washout is likely in my view.

Data due Wednesday: All times EASTERN (-5 GMT)

2:00am EUR German Import Price Index m/m 0.6%
4:00am EUR Current Account 4.3B
Tentative EUR German CPI m/m (p) 0.3%


Resistance 3:  105.00/10
Resistance 2:  104.80
Resistance 1:  104.40/50
Latest New York:  104.24
Support 1:  103.20/30
Support 2:  103.00/102.90
Support 3:  102.50

Late rally shows upside bias still working. Rally into the 104.80 area is the best potential short area in my view. COT data showing an increase of net JPY longs making the upside potential for the USD a bit higher in my view. Stops above the 104.10/20 area likely to be in size and the question is how big are the offers ahead of 104.40? Stops the other side of 104.50 said to be in size suggesting that speculators got heavily short near current market pricing as 104.50 area is in range with the recent weekly highs. This week’s data may support near-term as the USD has had a lot of bad press the past quarter and has managed a firm start to the year; perhaps the Yen has a further downside correction to go before the USD bears are again out in force. If this weeks’ data is USD supportive then the rate has a pop higher into resting offers coming. Watch the upside volume for clues to the speed of the rally; if it is coming.

Data due Wednesday: All times EASTERN (-5 GMT)

Tentative JPY BOJ Governor Shirakawa Speaks
7:50pm JPY Retail Sales y/y 0.5%
7:50pm JPY Large Retailers' Sales y/y -1.1%

Analysis by: written by Jason Alan Jankovsky

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